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Abhishek's Report for YEMP Chisel Project

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Abhishek Singh
Abhishek Singh

This document discusses mutual funds and the tax benefits of investing in them. It begins by introducing mutual funds and their advantages, such as reduced risk through diversification. The objectives are then stated as understanding mutual fund basics, their various schemes, and the tax benefits of investing in them. The background section provides more details on mutual fund history, categories (open-ended vs. closed-ended; money market, fixed income, equity), and regulatory environment. The purpose is identified as creating awareness of benefits like tax deductions that people may not be aware of from investing in mutual funds.

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1 INTRODUCTION The purpose of this study is to find out the tax benefit we get after investing into Mutual Funds. There are different areas of investment like Real-estate, gold, equity etc. one such area is mutual fund investment. Mutual fund offers good investment opportunities to investor because it has diversity and low risk for the investor. We can define mutual fund as a mechanism for pooling the resources by issuing unit to investors and investing fund in securities in accordance with objectives as disclosed by the offer document. The advantage is, investor can invest in various sectors and industries and thus can reduce their risk. The reason is all stocks may not move in the same direction at the same proportion. So here if one sector is going down, other may go up thus minimizing the risk of the investor. The profit or loss is shared by the investor in proportion to their investment. This is the reason why people go for investing in mutual funds. The mutual fund offer tax rebate to the investors under specific provision of income tax act 1961 e.g. equity liquid saving scheme u/s 80(c ), pension scheme launched by mutual funds also offer tax benefits. OBJECTIVES  To study the basics of mutual fund  To describe the various schemes under mutual fund  To discuss the advantage of investing in mutual fund  To discuss the tax benefits that we would get after investing in mutual fund Report for YEMP Chisel, February 2012 PhiNNACLE Investment Project Name: Mutual Fund and Tax Planning Project Team Member(s): 1. Abhishek Kumar 2. Pooja Tripathi 3. Shubham Sahu Project Supervisor: Priti Bakhshi Date of Report Submission: 20.02.2012 Purpose of Project/Report: What are the benefits of mutual fund and how tax planning is beneficial for the investor and investment company..!!!
2 PROBLEM AREA IDENTIFICATION The purpose of this report is to identify the various benefits of investing in mutual fund which people at large are not aware about. They see investment as an upside down going market where there is a lot of risk and chances of getting returns are less or you are mostly going to face loss. This thinking is there because of lack of knowledge and awareness about this area. People are unaware of the benefit which they can gain after investing into mutual fund. for e.g. by investing in ELSS we can tax deduction upto Rs 1 lac from the taxable income under sec 80 (c ) resulting in reduction of taxable income. Similarly investing in ULIP under UTI and pension scheme under mutual fund can give tax benefit and also security as well as good return after retirement. People mostly use bank for saving their amount where they get little return from interest rates but in mutual fund we can get high return on investment as per the market performance. Therefore there is a need for everyone to know its importance and how it can be used for tax planning which can be done by taking the advantage of various deductions we get from taxable income u/s 80 (c ) to 80 (u ). It will increase our saving and is beneficial for government also because whatever exemption we get are for those incomes which somewhere or the other used by government for the development of economy and to maintain the liquidity. Background of the study Mutual funds A mutual fund is a pool of money that is managed on behalf of investors by a professional money manager. The manager uses the money to buy stocks, bonds or other securities according to specific investment objectives that have been established for the fund. In mutual fund investors can invest in different industry and sectors. They are generally categorized according to their investment objective. Some mutual funds invest on stock, other bonds, money market instrument or other securities. It can be open-ended or close ended depends upon the investment objective. History of mutual funds Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector
3 entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspecting by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. Schemes of mutual fund Schemes according to maturity period: Under maturity there are two types of scheme-open ended scheme and close ended scheme. Open ended scheme- Under this scheme or fund investor can subscribe or repurchase on a continuous basis. Investor can buy or sell the number of units at any time at net asset value which are declared on a daily basis. These schemes do not have fixed maturity period. The key feature of open ended scheme is liquidity. Close ended scheme- under this scheme there is a fixed maturity period for e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to the investment objective: Money market fund – this scheme is for a short term – less than 1 year to maturity. The risk is low. Return on this scheme fluctuates much less as compared to other fund. This scheme invests in instrument like treasury bills, certificate of deposit, commercial paper, government securities etc. Fixed income funds –in these investors invests in debt securities like – bonds, debentures or mortgage that pay regular interest or in corporate preferred shares which can pay regular dividend. In this risk is less and investors are getting fixed return on their investment. Growth or equity funds – the goal of this scheme is the mid to long-term growth by investing in riskier and big companies. Such schemes normally invest major amount in equities. Growth
4 schemes are good for investors seeking for long term growth and capital appreciation. Performance of this scheme depends upon the performance of the stock market. This schemes provide different options to the investors like dividend option, capital appreciation etc. depending on their preferences.

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Abhishek's Report for YEMP Chisel Project

  • 1. 1 INTRODUCTION The purpose of this study is to find out the tax benefit we get after investing into Mutual Funds. There are different areas of investment like Real-estate, gold, equity etc. one such area is mutual fund investment. Mutual fund offers good investment opportunities to investor because it has diversity and low risk for the investor. We can define mutual fund as a mechanism for pooling the resources by issuing unit to investors and investing fund in securities in accordance with objectives as disclosed by the offer document. The advantage is, investor can invest in various sectors and industries and thus can reduce their risk. The reason is all stocks may not move in the same direction at the same proportion. So here if one sector is going down, other may go up thus minimizing the risk of the investor. The profit or loss is shared by the investor in proportion to their investment. This is the reason why people go for investing in mutual funds. The mutual fund offer tax rebate to the investors under specific provision of income tax act 1961 e.g. equity liquid saving scheme u/s 80(c ), pension scheme launched by mutual funds also offer tax benefits. OBJECTIVES  To study the basics of mutual fund  To describe the various schemes under mutual fund  To discuss the advantage of investing in mutual fund  To discuss the tax benefits that we would get after investing in mutual fund Report for YEMP Chisel, February 2012 PhiNNACLE Investment Project Name: Mutual Fund and Tax Planning Project Team Member(s): 1. Abhishek Kumar 2. Pooja Tripathi 3. Shubham Sahu Project Supervisor: Priti Bakhshi Date of Report Submission: 20.02.2012 Purpose of Project/Report: What are the benefits of mutual fund and how tax planning is beneficial for the investor and investment company..!!!
  • 2. 2 PROBLEM AREA IDENTIFICATION The purpose of this report is to identify the various benefits of investing in mutual fund which people at large are not aware about. They see investment as an upside down going market where there is a lot of risk and chances of getting returns are less or you are mostly going to face loss. This thinking is there because of lack of knowledge and awareness about this area. People are unaware of the benefit which they can gain after investing into mutual fund. for e.g. by investing in ELSS we can tax deduction upto Rs 1 lac from the taxable income under sec 80 (c ) resulting in reduction of taxable income. Similarly investing in ULIP under UTI and pension scheme under mutual fund can give tax benefit and also security as well as good return after retirement. People mostly use bank for saving their amount where they get little return from interest rates but in mutual fund we can get high return on investment as per the market performance. Therefore there is a need for everyone to know its importance and how it can be used for tax planning which can be done by taking the advantage of various deductions we get from taxable income u/s 80 (c ) to 80 (u ). It will increase our saving and is beneficial for government also because whatever exemption we get are for those incomes which somewhere or the other used by government for the development of economy and to maintain the liquidity. Background of the study Mutual funds A mutual fund is a pool of money that is managed on behalf of investors by a professional money manager. The manager uses the money to buy stocks, bonds or other securities according to specific investment objectives that have been established for the fund. In mutual fund investors can invest in different industry and sectors. They are generally categorized according to their investment objective. Some mutual funds invest on stock, other bonds, money market instrument or other securities. It can be open-ended or close ended depends upon the investment objective. History of mutual funds Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector
  • 3. 3 entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspecting by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. Schemes of mutual fund Schemes according to maturity period: Under maturity there are two types of scheme-open ended scheme and close ended scheme. Open ended scheme- Under this scheme or fund investor can subscribe or repurchase on a continuous basis. Investor can buy or sell the number of units at any time at net asset value which are declared on a daily basis. These schemes do not have fixed maturity period. The key feature of open ended scheme is liquidity. Close ended scheme- under this scheme there is a fixed maturity period for e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to the investment objective: Money market fund – this scheme is for a short term – less than 1 year to maturity. The risk is low. Return on this scheme fluctuates much less as compared to other fund. This scheme invests in instrument like treasury bills, certificate of deposit, commercial paper, government securities etc. Fixed income funds –in these investors invests in debt securities like – bonds, debentures or mortgage that pay regular interest or in corporate preferred shares which can pay regular dividend. In this risk is less and investors are getting fixed return on their investment. Growth or equity funds – the goal of this scheme is the mid to long-term growth by investing in riskier and big companies. Such schemes normally invest major amount in equities. Growth
  • 4. 4 schemes are good for investors seeking for long term growth and capital appreciation. Performance of this scheme depends upon the performance of the stock market. This schemes provide different options to the investors like dividend option, capital appreciation etc. depending on their preferences.